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Gafisa S.A. (NYSE:GFA)

Q3 2012 Earnings Conference Call

November 13, 2012 08:00 a.m. ET

Executives

Duílio Calciolari – CEO

Andre Bergstein – CFO and IRO

Fernando Cesar Calamita – Planning and Control Officer

Luciana Doria – Head of IR

Analysts

Gustavo Cambauva -- BTG Pactual

Nicole Hirakawa -- Morgan Stanley

Felipe Rodrigues – HSBC

Bruno Lima -- Unity Capital

Alan Nicolao – Bradesco

Eduardo Silveira -- BES Securities

Diego Mendes -- Itau BBA

Operator

Good morning and welcome to Gafisa’s Third Quarter 2012 Results Presentation. At our call today, we have Duílio Calciolari, Gafisa’s CEO; Andre Bergstein, the company’s CFO and IRO; Fernando Cesar Calamita, Planning and Control Officer; and Luciana Doria, Head of IR.

We would like to inform you that the presentation is being recorded and that all participants will be in a listen-only mode during the company’s presentation, then we will begin the Q&A session. (Operator Instructions)

Before we begin, I would like to inform you that this teleconference will relate to Gafisa’s financial results of the third quarter 2012 as well as information currently available. Statements made by management involve risks, uncertainties and may relate to future events. Any changes in macroeconomic policies or legislation and other operational results could affect Gafisa’s performance.

Mr. Calciolari, you may proceed.

Duílio Calciolari

Good morning and thank you for joining us today. I would like to start by updating you about the offices and how it is doing. Progress is being continued and with positive signs that we are on the right track. The execution of Gafisa’s progress has been following the target for the year. Cash generation and deleveraging of our balance sheet continue to be priorities, and I would like to say that we’ve made contribution of more than 17,000 unit. We have already exceeded the mid range of our operating guidance with a new one of BRL 600 million to BRL 800 million for 2012. Besides focus on cash generation as from the operations, we also filled off non-strategic plan and we generated new business with adequate profitability.

Gafisa is practically the only concentrated now in the states of Rio and São Paulo. In the first five months of the year, we launched projects evaluated in BRL 795 million. All of them aligned to our metrics of profitability and good commercialization and a speed of sale of 59% in the year. The completion of projects in non-strategic areas will still impact our profitability short term, but after this plan, complexity will be reduced optimizing our execution capacity

In Tenda, we continue to focus on the delivery of ongoing jobs and during the year we transferred 9,600 units to financial institutions and delivered more than 10,000 units. Of the contracts which were cancelled, 70% have already been resold We are postponing Tenda’s new launches for the first quarter of 2013 so as to keep the good work going and the focus of the team on the conclusion and delivery of the current unit. Thus, we will not launch the BRL 300 million that we have originally planned for this brand this year.

Now, our Alphaville project continues to generate interesting returns to the group. The brand has grown and now accounts for almost half the launches of this year and should reach more than BRL 1 billion. Taking into account the profitability achieved by that brand as the current opportunities for development in Brazil, we will continue to allocate resources to the segment, always trying to keep a balance between growth and profitability.

Now we go to slide 3, and I would like to show you the highlights of the period. As I have already told you, we managed to achieve our cash generation target before we had planned. In the first nine months of the year, we generated a flow of operating cash of BRL 607 million compared to the annual guidance of BRL 500 million to BRL 700 million previously established. Plus, we increased the operating cash generation guidance between BRL 600 million and BRL 800 million.

The generation of consolidated cash, cash burn, was positive in a BRL 149 million in the third quarter and in BRL 304 million in the nine months of the year. Launches totaled BRL 452 million during the third quarter and BRL 1.5 billion in the first nine months of the year, accounting for 54% of the guidance of launches for the year. It is important to remind you that our original launch guidance for the year of BRL 2.7 billion and BRL 3.3 billion included Tenda’s launch in the third quarter, and now this will only occur next year.

The contracted sales for the third quarter was BRL 689.4 million, exceeding launches and resulting in a stock reduction. These figures of consolidated sales was 19% instead of 23% excluding Tenda. About AlphaVille, the process of acquisition of the stake of 20% is in the process of arbitrage.

On slide 4, as I told you before, our turnaround strategy is focused on cash, important generation of cash and deleveraging of the company. Our capacity of units delivery benefited the generation of cash in the first nine months of the year as you could see in the left-hand side of the slide. This chart shows that we have grown in the reduction of cash bond during the last two years and the last two quarters. We have managed to generate positive cash. In the third quarter, cash generation was BRL 149 million. On the right-hand side, the chart will show you the makeup of the entry and exits of cash. It splits up into contributions per account totaling in cash operating generation of BRL 607 million in the first nine months and especially in the transfer line which totaled BRL 1.6 billion.

Slide 5, sales over supply. This has improved in the quarterly comparison to 23% compared to the 20% reported in the second quarter excluding tender. If we include tender, the results of the third quarter were also better than the former quarter even with the impacts of the contracted solutions. Sales as a percentage of launches increased 67% in the annual comparison representing an increase of 140 percentage points, whereas the inventory decreased to 8.6% in the quarterly comparison.

Slide 6, you can see a snapshot of our land bank. Generally speaking the profile of our land bank is aligned with our strategy of expansion of our main markets. On a consolidated basis, our DSC was BRL 18 million equivalent to 85,000 units. More than half of our land bank was acquired through swaps and particularly by our stake at AlphaVille in the mix.

Seven, delivery of units, this was consistent with our guidance of year of 24,000 units and we have already delivered this year to all our brands more than 17,000 units. As I have also mentioned before, Gafisa’s brand has reached 53% of the mid-range of the guidance launches on 2012, BRL 1.5 billion, 4% of Alphaville. This percentage has been negatively impacted because of delays of the approval of projects. But this is practically resolved now. These projects of lower margins that launches which were carried outside of current strategic markets are being delivered and should be concluded throughout the next year resulting in better margins for the future.

Slide 9, Alphaville continues positively contribute to consolidated results. The contribution of the market for the group’s mix increased to 47% in the last 12 months. This increase considered both on strategy of maximizing of the potential of our Alphaville operations and the reduction of the Tenda operations. Loss sales accounted for 81% of total sales, while the 19% remaining accounts for the sale of inventory, 2,612 units were delivered to the first nine months.

Slide 10, follows the progression correcting the Tenda operations which is an essential part of our turnaround strategy. The restructuring of the Tenda brand is being carried out according the plan. Throughout this year, 9,500 units were transferred to financial institutions, 80% of the mid range of the guidance for the year. This means that our receivables portfolio is improving and we are less exposed to risk of delinquency of individuals of the 7,000 units given margin, 70,000 were given back to qualified individuals during the first nine months of 2012.

The growth sales decreased 15%, BRL 294 million because of the less availability of inventory for sale. We contracted with financial institutions about 14,000 units. We must also say that Tenda has about 15,000 units to be delivered. Our expectation is to tick up launches of Tenda again in 2013 when we expect to see our process is implemented our business model to be more profitable.

Now Andre, our CFO, will analyze the financial results of the third quarter and the nine months of 2012.

Andre Bergstein

Thank you, Duílio. As you may see on slide 12, the growth results of the third quarter 2012 totaled BRL 308 million with a gross margin of 29% which means that this is an increase regarding the 36.8% reported in the second quarter of 2012. Excluding the Tenda impact, the gross margin of the third quarter would be 34% and in the nine-months of 2012 the consolidated gross margin was 26% compared to 175 of the same period of 2011.

The EBITDA of the first nine-months of the year was BRL 437 million representing a margin of 14%. This result basically reflects the EBITDA contributions of Gafisa with 15% and AlphaVille with 35%. Tenda, although it had reported a better EBITDA than the former quarter continues to impact the consolidated EBITDA negatively. Excluding the Tenda operations, the EBITDA margin in the first nine-months of 2012 would be 20%.

The net result had an improvement in the sequential basis to BRL 55 million above the BRL 1 million reports to the second quarter. Our expectation is to continue to improve to present gradual improvement to the consolidated margins as we complete for deliveries of the Gafisa projects where we have had lower margins.

Going on to slide 13 now, the general, administrative and sales expenses of the company, sales was BRL 151 million in the third quarter 2012, 12% lower than the BRL 127.1 million in the second quarter 2012 and 10% above the BRL 137 million in the second quarter of 2011. The expenses with sales on the third quarter dropped 10% in the annual comparison going from BRL 78 million in the third quarter 2011 to BRL 70 million in the third quarter 2012, due mainly to a lower volume of launches.

During the nine months 2012, admin expenses totaled BRL 253 million, an increase of 43% in comparison to the BRL 176 million spent in the nine months of 2011. This variation is mainly explained by three factors; first, the provision for variable compensation and the stock option program which accounted for 48% and 14% respectively of the total of change in the annual comparison.

Second, expenses related to services rendered, which accounted for 20% of the change including expenses was auditing and consultancy. And third, increase of admin expenses due to the expansion of AlphaVille operations, which accounted for 15% of the total of the change in this annual comparison.

On slide 14, we have the group’s revenues distributed by three brands and according to the period of launches. In the nine periods of 2012, Gafisa brand contributed over 52% of total revenues, AlphaVille with 17% and Tenda with the remaining 31%. Past position is almost the same to those of the first nine months of 2011. The contribution of revenue for periods of March has to do with the financial cycles of each brand while AlphaVille shows a greater contribution on launches in 2011 and 2010. Gafisa has a greater influence in the launch of 2010 and 2009.

Slide 15 you may realize how the Gafisa now reveals margins contribute to the result to the end which in the second quarter of this year were BRL 1.3 million with a consolidated margin of 35% excluding Tenda. The REF margin would go up to beyond would notably recognized would go up to 38%.

The backlog results maintained stable when compared to the last quarter and the same as the quarter last year. Slide 16 shows us how that cash grew in first nine months of this year. Our cash position in the third quarter improved also in the annual comparison and quarterly comparison and we believe we are in a good position to be able to carry out our development plans.

The consolidated cash generation in the third quarter was partly by about BRL 149 million leading to a drop of our leverage debt – net debt over equity ratio reached 106% in the third quarter a constant of participant reduction vis-à-vis the 112% presented at the end of the second quarter 2012 excluding project financing, this ratio reached 28% compared to the 34% in the previous period.

With this cash generation in the third quarter, we have come to a net generation in the first nine months of the year of BRL 304 million. To achieve this generation, it was essential to have a focus on our core business through a process of efficient transfer, effective collection, the sale of non-strategic land and securitization or alignment of receivables portfolio. Corporate debt which started at 2012 were 52% of the total debt, closed the first nine months of the year with 48%, now debt which has to do with projects went from 48% to 52% of total debt.

Now, let’s just go to slide 17. The table shows us the maturity and debt profile of Gafisa. With the drop of the Selic, our average nominal cost was 9.28% a year. Of the total volumes of the debt and obligations to investors, 38% come due in the next 12 months, 49% of these are represented by debt which has to do with projects and 51% to corporate debt. Gafisa today is in compliance with all the covenants, debt covenants and also because of the improvements of receivables, you may see on slide 18 that cost to be incurred was obligations in the building of projects that have already been launched totaled BRL 3.4 million.

Regarding the same projects we have today a portfolio of BRL 8.6 billion in receivables which refer to sold units. The total receivables plus inventory at the market value is above BRL 11.6 billion which gives us a good liquidity situation to carry out the ongoing projects.

Slide 19, our performance to the first nine months of the year show that we are on the right track to achieve the objectives later for 2012. As we have mentioned beforehand, excluding the Tenda launches from our annual guidance, we have reviewed the 2012 guidance for brackets between BRL 2.5 billion and BRL 3 billion. We have reached in the nine months 54% of the average point between the guidance of launches. Gafisa will be – or will account for 55% of the launches and AlphaVille for the other 45%.

At the end of the third quarter, we are now in the midrange and for this reason, we have reviewed our official guidance for BRL 600 million to BRL 800 million. We will continue to focus on the delivery of Gafisa and Tenda units to the transfer of Tenda units to financial institutes, transfer Gafisa units to banks, sales of inventory, securitization of receivables and the sale of non-strategic land. The deliveries for the year are in line with our projections.

In September, we reached 74% of the midrange of our delivery guidance. We have confidence that we will reach, achieve our targets in the fourth quarter and we believe that the continued of our new strategy will lead to improvements to our results short and medium term.

Thank you so much for your attention and we will now go to our Q&A.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now start our Q&A for analysts and investors. (Operator Instructions) Our third question comes from Gustavo Cambauva from BTG Pactual. You may proceed.

Gustavo Cambauva -- BTG Pactual

Good morning. I have two questions; the first has to do with Tenda next year. I’d like to know what is the difficulty to that if we were to stop the launch of the Tenda for a year. so are you taking new land or will you have a team to finish the building? Should you bring in more people?

So – and my second question, still about Tenda, has to do with the percentage of resale, the percentage of 78% of the distribution of contacts has been resold that seems high. So how these units being transferred and who has bought them? Do you have any indication of the first quarter? So who are these plants that have bought these units? So perhaps you could elaborate on this?

Duílio Calciolari

Good morning, Gustavo. I would like to ask Rodrigo to answer these questions as he is much closer to the operations and I think he is the best person to give you greater details about this.

Rodrigo Coimbre Pádua

Hello, Gustavo. I think that the main difficulty of Tenda is the discipline that we are imposing for new budgets differently from what we have been doing and what the market have practiced. Today, we launched projects that have been contracted with cash economic.

So the plant can be transferred as soon as they buy as long as this is the first time. And this – the process is more complex and involves questions of municipal approvals but also our project which have to do with the concessionaries and the financial agencies, the cash or the Bank of Brazil and this delays the approval process for the land. And besides that, we also have the challenge of building up the land bank of the company again.

The land bank profile has changed and we are much more focused on specific kind of projects nowadays and this calls for very special kinds of land. And besides having very special particular land contracted with cash, we must continue also with the kind of building. We have to have a very secure land bank. What these all does mean? There are two technologies that we have for low income brackets. One is the kind of special masonry, structural masonry and also aluminium sheets. These technologies have different advantages, but perhaps the structural masonry is more flexible. It’s a model that you can vary and has a good scale.

Tenda has made the option also for the aluminium sheets. This is a technology which we have been very successful with where cost deviations and of quality have been very low and there is an additional advantage. When operators have the scale, the cost is lower than the masonry and it requires – but it requires a minimum scale and we have to have land banks that will give us a minimum scale of operation or continuity of operations. So the main challenge is today for launches are to break up our land bank again and go through all the different stages of contracting.

Regarding your second question about resales, about the transfer, an assumption which we have for the sales is a major transfer. Obviously, the immediate transfer was resolved immediately. This client has to go through all the process for transfer but what we have noticed nowadays is that the new sales have had an average speed of transfer of 80% of these units are transferred up to three months and 100% up to four months. So the receivables transfer that you fail is substantially lower than that which we had before.

Gustavo Cambauva -- BTG Pactual

Thank you very much, Rodrigo.

Operator

Our next question comes from Nicole Hirakawa Morgan Stanley. You may proceed.

Nicole Hirakawa -- Morgan Stanley

Good morning. My question is about the debt level. You have a corporate debt coming due the next eight months about BRL 1.5 billion it seems. And I’d like to know what you’re doing about maybe willingness to hand over or do you think you have enough cash to cover this or will this be conditioned to a sell a stake in Alphaville? And also one of the covenants is 2.22 twice and the minimum is 2.2. So what do you think will happen with this covenant in the next quarter? I know it depends on the volume of receivables and I imagine that it’ll continue to drop. Perhaps you could say a little bit more about that. Thank you.

Andre Bergstein

Hello Nicole, this is Andre. Regarding the question of the debt in the next 12 months in terms of total debt, we have BRL 1.4 billion and this reasonably split up 50% or more which 50% of corporate debt. And as far as corporate debt goes in some cases, we have rolled out also – rollover of covenant. The Tenda debenture is one case where we rolled it over partially. We decreased the amortization and now on October this year and next year and extended the term.

So this improves our cash flow and then currently with another debt which is coming due at the end of the year, BRL 150 billion, although it still appears on the report like others. In fact, there was not it will decrease BRL 150 million and also some other which we are paying off. So with this partial movement of rollover and also some payoff, we are in a comfortable situation vis-à-vis the payment of the debt which was coming due and also the – which help also and also with the transfer.

The other point that you mentioned, in fact there was a mistake which we adjusted and this covenant took into account the receivables but not the cash. So anyway, this has been reported in this last quarter. Now at the beginning of October, we have already been talking about this and they in fact, it is very close to the limit and now it is much more inconsistent – consistent with the reality of covenant. Would you believe that these amortizations for the next 12 or 18 months or so are dealt with? And regardless of the needs of high – taken out of you or...

Duílio Calciolari

Yes, yes. Yes, it will be dealt with with the cash flow, and we will not have to sell of any assets. Thank you.

Operator

(Operator Instructions) Our next question comes from Mr. Felipe Rodrigues from HSBC. Mr. Rodrigues?

Felipe Rodrigues – HSBC

Good morning. Regarding Tenda’s inventory, we can see the BRL 780 million that doesn’t seem to be too much, but the contractor solutions level is still quite high, 263 compared to sale 293. My question is the level of contract, the solutions, hasn’t been following the number of deliveries? So you’re only delivering those who cannot fit in to the Maratá Viver a Vida so that there is a dissolution of the contract came on a margin – a lower level of contract dissolution to the next quarter?

And my second is August inventory, you have about 43%, 44% out of the Maratá Viver a Vida project. What is the best new strategy of selling or transferring this initiative Minha Casa, Minha Vida or one other project. Transferring this immediately Minha Casa, Minha Vida or one other project.

Rodrigo Coimbre Pádua

This is Rodrigo speaking. Minha Casa, Minha Vida is contracted in the following modality. The plant is annualized during the works and our contractor solutions are those longer for reservation of the unit besides that this is client when the plant – we don’t have a very – new expectation of the substantial phase of the plan. So first is the contractor solutions of contract. It is continuously. It doesn’t happen all of a sudden and the demand, the (inaudible) of Minha Vida, the market is huge.

Today there’s a lack of supply. Now the inventory outside Minha Casa Minha Vida, this is a product that has a characteristic more like the asset, each of the government. So it should be decided whether he is eligible for this or not, this product has a turn or would have a failure which is lower. And the price quotation, they have greater expectations of savings. This client would have a transfer in 24 months and they would be able to save. The alternative that we have is to give a discount and we are analyzing in which situations would be worthwhile to perhaps have less profitability but for immediate cash.

Felipe Rodrigues – HSBC

Well, so this level of contractor solution which you’ve had in the Tenda, can you – can we expect a better level over the next two quarters?

Duílio Calciolari

Yes, I think so. Unfortunately, Tenda’s portfolio is one which remained for a long time without being work upon and the characteristic of the client of Minha Casa Minha Vida are relatively no bracket and so as long as there’s a portfolio in the market of the Minha Casa Minha Vida, the level of contractor solution will still be reasonably high.

Operator

Next question comes from (Inaudible).

Unidentified Analyst

Good morning. Congratulations. I have two questions. But first, when you talk about the new Gafisa project within the profitability standard, can you give us an idea of what you are seeking of gross margin in this new period? And the second question is could you talk about the cash generation of the third quarter? How much gains are from the sale of land if any?

Duílio Calciolari

Well, David, good morning. First question, what we are looking for in Gafisa – that gross margin we are looking for in this project in Gafisa in the areas of São Paulo and Rio de Janeiro is about 35% approximately. This is a target that we’ll have for a project.

Regarding cash generation, I’m not sure that you – whether you have the presentation but on page 4 of our presentation, you will see how we make up cash generation, the BRL 670 million, on the nine months of BRL 245 million in the third quarter of the operating generation. And you can see that in the third quarter, we did not have securitizations. We had BRL 23 million of cash entry because of the sale of land, sales which occurred before the third quarter. In the third quarter, the sales were much lower than that.

And the exit of cash because of payment of land was BRL 54 million. So basically in the third quarter, we did not have much impact on cash generation because of securitization or because of land sales. The impact was greater in the first half of the year where we generated cash entry because of the sale of land of BRL 122 million. And throughout the year, David, we do not have any important impact coming from securitization. We have not yet had any relevant securitization during the year which should happen now in the last quarter. In the fourth quarter, we should have an important securitization of receivables that I view which will contribute to operating cash in the fourth quarter.

Unidentified Analyst

Thank you.

Operator

Our next question comes from Mr. Flavio Ponzi from (inaudible).

Unidentified Analyst

Good morning. Congratulations for the results and you presentation which was so detailed. My question is about Gafisa. Are you going to reduce your inventory? And you talked about the growth – gross margin for Gafisa, what would be for Tenda? And in two years time, when you have received or removed a lot of the low margins, how much are you expecting for the net margin?

Duílio Calciolari

Good morning, Flavio. This is Duílio. As far as Tenda growth, looking at the new Tenda project, we do not work for anything above 30% of gross margin. We will operate with 30% greater turnover to Gafisa and financial economic equation than Gafisa. This is our expectation for Tenda.

Regarding the inventory for Gafisa, we have an important Gafisa inventory outside São Paulo and Rio. We don’t have any problem regarding sales speed in São Paulo and Rio. Regarding the absorption of inventory in these two regions, to tell you the truth we have a lack of supply in São Paulo and Rio. We are bringing a new products now. So what we have an excess of supply in other regions are leaving. In the north and northeast, Salvador is delaying in some ways. There we have about 500 million in inventory which we have to sell in the next quarter and we are focused on this on several fronts. A clear example and the current example is the large event we are holding on – in this events to step up the sales of these inventories in Gafisa which are concentrated in other regions outside São Paulo and Rio.

Regarding the margins, future margins, we should not expect anything different or less than what we have had. I’m talking on our long term 10% to 15% on the bottom line, why? Because if you see that AlphaVille counted with 20% and so it continues to contribute with 20% of the net margin. What happens is that Gafisa and Tenda still consume all that comes from AlphaVille.

As soon as we get Gafisa well under control and this is rather advance because they have no execution. Execution is very close to zero in these markets and we will have a much more controlled market, better known markets, São Paulo and Rio. The Gafisa net margins will also improve and Tenda we have a great challenge which is bring Tenda back to fundamentals.

We don’t expect more than 20% for Tenda but we must prove this, we have not yet done this. But it is our expectation. We will work in the future, Flavio about between 10% and 15% of net margin in the consolidated results of the company. Believing that the combination of Gafisa and AlphaVille are as well advanced and Tenda begins now to launch in the next year, and obviously we will test our execution in what we call fundamentals. This is our expectation.

Unidentified Analyst

Just one more question please. How much do you expect or when do you expect to stabilize the launch of Tenda to make the indebtedness drop? At what level of the net debt over equity ratio do you think is reasonable?

Duílio Calciolari

Well, this is a difficult question to answer, Flavio because at this moment we are developing our next five-year plan and the most critical question is the balance between the drop of the indebtedness to keep the size of the company or (inaudible) a little bit this means how much land are we going to buy and the leverage and whether we’re going to give up any opportunities for the company’s growth. At this particular moment, priority is deleverage so we don’t see any deleverage at levels that are more comfortable of our 60%. Today we have a little -- about less than 70%. We do not think that just with cash generation we will do this in the next year. We should achieve something a bit more until the end of the year next year.

We are working on this. We cannot say this precisely. There’s an important equation how much land are we not going to buy or buy. And also what the scenario is going to be, what is the scenario is going to be next year in terms of products, economy, inflation. So we must wait at least for the next quarter to give you a better picture of what we expect for 2013 and 2014. Thank you.

Operator

(Operator Instructions) Our next question comes from Mr. (inaudible) from Santander. You have the floor.

Unidentified Analyst

Good morning. The question has to do with what was being discussed now focusing on operating cash flow. I’d like to understand on page 4 how will you expect these numbers to develop in the next quarters? Can you give me a large number the volume of transfers? How it will grow in the third quarter next year?

Land has dropped and I imagine that sometime it looks up pulling up again. And so when are you going to rebuild the land bank? So generally speaking can you give me an idea of what is the trend here of these main items?

And my second question is it possible to have an idea of timing for getting the arbitration process in AlphaVille? Can you tell us about this program and time wise?

Andre Bergstein

This is Andre. Regarding your first question, we have been designing a new plan, a five-year plan, so this has to do with the amount of land that we’re going to buy to have a better idea for our cash flow next year. Now, regarding next quarter, the beginning of next quarter, and this quarter, in fourth quarter, our trend is similar to what we have been reporting and what has been happening throughout the year.

So we continue with strong transfer. Regarding the deliveries, which has been constant during the year, 6,000 units every quarter, this is being generating in the next quarter, especially in Gafisa and also in Tenda. And on the first half of the year, the securitization is something that we’re working on, as Duílio has said, there’s an expectation of a larger operation to be settled, and outflows, nothing very different.

So this last quarter should follow these trends, the trends of the year, and consequently, with the deliveries now with the last quarter, and something also might happen in the first quarter of next year. And as we finish our next five-year plan, in view of these variables that we still have to deal with, we will have a better notion from now on to be able to give you better idea.

Regarding the arbitrage, we cannot give you a right date. It’s a very complex process and we have in the beginning in the presentation of each one of the sides of the parties so we will be following this up and this will be extended into next year so we cannot yet give you an exact notion of when it will be finished.

But as it goes on and roll out, we will give you an idea and expectation of when it will come to door to a close.

Operator

Our next question comes from the webcast, Mr. Bruno Lima from Unity Capital.

Bruno Lima -- Unity Capital

What strategy to reduce the general and sales expenditures?

Duílio Calciolari

Good morning. Well, when we look at the G&A expenses, what we want to do is reduce complexity. The fact that we have significantly expanded in the last years in several regions and the company has grown as a whole obviously, this has generated growth of expenses.

What do we see from now on? We think there will be a greater stabilization that company will stabilize in terms of the volume of launches, a little more, a little less, but we don’t think that it will be much variation. And as the complexity reduces, then we will be much more efficient obviously in this indicator and there will be greater efficiency as well, and this is our expectation.

Reminding you obviously that the fact that we have reduced some operations regarding previous periods, Gafisa had reduced but AlphaVille has grown, so there will be a reallocation of assets too. I think that next year we will be optimizing our structure in view of the complexity reduction as we have mentioned.

Operator

Our next question comes from Mr. Alan Nicolao from Bradesco.

Alan Nicolao – Bradesco

Good morning. I have a question going back to the land bank. I would like to know about the results of the third quarter. On page 10, you said the revenue improved 8% of the revenue sale of land. Does this have an impact to the third quarter and if it did with what margin?

Fernando Cesar Calamita

This is Fernando Calamita, Director of Planning and Control. In the third quarter, we had an effect of land sales of BRL 37 million in the revenue and BRL 37 million in cost. So that land which we sold throughout this quarter, there were something, some land which was being sold at the land of the last quarter and the document came to us this quarter and we recognized this between July and September. The net result of this effect was practically zero on the results of the quarter.

Alan Nicolao – Bradesco

Thank you.

Operator

Our next question comes from Eduardo Silveira, BES Securities.

Eduardo Silveira -- BES Securities

Good morning. I’m not sure if my question has already been answered. We see in the third quarter, we have 19% of the revenues operating costs, so could you tell me what these other expenses for around BRL 34 million in the quarter and what about G&A, the G&A dropped BRL 13 million in the quarter, where there some reclassifications? So what about this in the future? This is Eduardo.

Duílio Calciolari

Hello, Eduardo. We – in the operating expenses, admin expenses, we had an increase regarding next year. This was on the stock options and there were compensation. We are making up these provisions this year and part of the AlphaVille operations and also auditing and consultancy. We had more auditing this year and increases and so this increased the admin expenses.

Eduardo Silveira -- BES Securities

I’d like to know about the others. Is there any non-recurring item there? Because there was quite a difference in this quarter, could you detail this and the total of operating expenses vis-à-vis the revenue. Now it’s 19%, could you give us an idea about this going forward?

Duílio Calciolari

Okay. I’m looking here BRL 33 million in the third quarter and this (inaudible) this amount has come from contingencies, labor and tax issues.

Eduardo Silveira -- BES Securities

So this number did go up this year?

Duílio Calciolari

I think this is now stabilizing and dropping when talking about provisions and so I think with the number of deliveries that we’ve have had, this is natural. It is natural that it should occur and sort of stabilizing and it will drop further on as the delivery of units will drop too.

Eduardo Silveira -- BES Securities

Thank you.

Operator

(Operator Instructions) Our next question comes from Diego Mendes from Itaú BBA. Mr. Mendes, you may proceed.

Diego Mendes -- Itau BBA

Good morning. My question has to do with those Tenda units that are still to be delivered. So what does this represent in cost of products sold? And also the Gafisa units too, do you ever recognize.

Duílio Calciolari

Well, the end of the year beginning of next year we will be delivering many of these projects. So with this we will be leaving are the markets of Gafisa and focusing only on São Paulo and Rio so the tendency is that by the beginning of the year we would have delivered all these projects and still throughout next year possible there will be some transfers as an inventory.

Regarding Tenda what do we have today, we still have the obligation of building Tenda of BRL 1.140 billion of ongoing projects. These are projects which will be completed by the end of next year. So we have still got some ongoing projects so we have altogether in Tenda we have BRL 2 billion in receivables, BRL 660 million in inventory a total of BRL 2.800 billion and building obligations of BRL 2 billion odd. So this is Tenda and anyway, these are the legacy figures that we have. Thank you.

Operator

So at this moment we would like to close our Q&A session. And I would like Mr. Calciolari to take the floor for his final remarks.

Duílio Calciolari

Thank you very much for your participation in our results call. I hope to see you in our next call and if you have any more questions, please get in touch with us, and I hope to see you back next quarter. Thank you very much.

Operator

Gafisa’s call is now finished. Thank you very much for participating and have a good day.

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